To an extent, the Chinese protesters did what they needed to do in terms of garnering responses from the Chinese government, both central and local. Here are some that I’ve seen:
1)According to AP yesterday, “In the capital of Beijing, city government officials announced they would no longer block access to apartments where infected residents live.” How generous of them.
2)”In the port city Guangzhou, officials said they would no longer require citizens to undergo mass testing, which they claimed was because of a lack of resources.” Zhejiang, where people have been locked down for 3 months, there is a story on Bloomberg today titled “China’s Zhejiang vows to put people first in covid prevention.”
3)A spokesman for the National Health Commission today in a press briefing said ‘China must reduce the inconvenience caused by covid outbreaks on the economy and the public to the minimum level’ and that ‘local officials must keep avoiding excessive covid curbs’ and that ‘NHC is coordinating with local governments each day to respond to complaints from residents in an active and effective way’, also according to Bloomberg.
4)On vaccinations, the NHC released a statement meant to encourage the elderly to get vaccinated.
5)A story on the South China Morning Post today said “Prestigious Beijing based Tsinghua University, a cradle of China’s political elites, has sought to pacify its students by addressing their concerns over covid related restrictions after they staged a weekend protest calling for ‘rule of law and freedom of expression.’ To placate the students, the university authorities held a meeting, both in-person and virtually, with students on Monday afternoon to discuss covid related measures.”
6)From the Chinese Global Times, “Several Chinese cities further refine measures of mass covid testing. Constant exploration helps China seek more scientific approach to tackle increasing cases.” These cities “have further optimized their anti-covid 19 measures with some places allowing residents without social activities to be free from mass testing.”
7)In an editorial on the South China Morning Post titled “China faces moment of truth on its zero covid policy amid public defiance, pandemic fatigue”, the author said “In Beijing, several communities tried to negotiate over the weekend with grass roots Communist Party committees, which are legally self-organized bodies without government authority, to lift lockdowns. Piece by piece, China’s zero covid system is crumbling under its own weight…China’s pursuit of zero covid is losing support and no longer resonates with the great majority of the population, who have had enough lockdowns and testing. It is time for Beijing to face the reality and make the right choice.” The bold is mine and keep in mind that the South China Morning Post
Bottom line, it seems that this is the beginning of the end of China’s harsh approach to covid and we need to think about what both China and the rest of the world will look like on a full reopening which we haven’t seen since 2019. How the world’s economy will respond, what inflation it generates, where energy prices go, and will we unleash the Chinese consumer and tourist again after three years of muffling. Also, does this keep global interest rates higher for longer? We remain bullish specifically on travel, tourism and leisure in both China (like Macau casinos) and the rest of Asia in anticipation of this reopening along with energy stocks and stocks broadly in Asia.
In yesterday’s November Dallas manufacturing survey which was -14.4, up 5 pts m/o/m, not as bad as expected but below zero for the 7th straight month, here were some notable quotes:
Food Manufacturing:
“We’re seeing order volume slow down as we approach the end of the year. Customers are pushing purchase orders out until the new year.”
“Customers are illiquid. Demand is there; there is just no cash to buy food. There is increased tension in terms of demand for skilled workers and retaining them.”
Paper Manufacturing:
“Business is slow and slowing. Our outlook for January is hopeful.”
Printing:
“This is a manufacturing business making packaging. I believe we are a very good indicator of economic trends. Having said that, order volumes are down vs prior quarters. There is less panic buying going on. Inventories are beginning to go down. Lead times we are able to give to our customers are beginning to decrease as input of new orders slows. The slowdown is consistent with normal seasonal factors but way below last year’s very high 4th quarter order level. We are beginning to see the end of the dislocations caused by the pandemic.”
“We seem to be as busy this month as last month and are still having to work overtime in certain departments every week.”
Chemical Manufacturing:
“Supply chain problems have decreased.”
Primary Metal Manufacturing:
“Recession is coming! We are just waiting for the backlog to evaporate. Then layoffs start.”
Machinery Manufacturing:
“We are very concerned about the volume of future business activity. We see our customers pulling back their plans for expansion but still planning for the future.”
“We are still running strong; however, we believe that it is inevitable that the economy will contract within the next six months.”
Computer and Electronic Product Manufacturing:
“Inflation pressure continues to increase our cost of goods sold. Staffing is still tight in Dallas-Fort Worth, but we are seeing more stability. The cost of capital is unbearable for small businesses and will delay or reduce expenditures or hiring unless business drives change.” The bold is mine and to my concerns with floating rate debt.
“Opportunities have been slower over the past two months, but it’s nothing dramatic.”
“Business is generally sluggish, and some European customers have put off new orders because of uncertainty in their market.”
“We are seeing weakness that began in personal electronics broaden into most markets except automotive.”
Transportation Equipment Manufacturing:
“The outlook is troubling and unsettling. Caution is the strategy.”
European bonds are rallying and helping US Treasuries in sympathy after Spain saw moderation in its November CPI to 6.6% from 7.3% and under the estimate of 7.1%. It was all lower electricity and energy prices though as the core rate rose to 6.3%, up one tenth m/o/m. At 8am est Germany will report its November CPI and based on the regional figures seen so far this morning, there will be moderation here too. The estimate is 11.3%.
We also saw the November Eurozone Economic Confidence index which did rise 1 pt to 93.7, .5 pt above the estimate. The boost was driven by a rise in consumer confidence and for services while manufacturing and construction confidence fell and was unchanged with retailers. The November rise comes after 8 months in a row of declines and assume lower energy prices helped the mood. The euro is higher but most currencies are vs the US dollar today. If China fully reopens, Europe will definitely benefit, particularly Germany.
Eurozone Economic Confidence
We saw last week weakness in South Korean exports so far in November, softness in Taiwan’s in October and today Vietnam said its November exports fell 8.4% y/o/y, well worse than the estimate of down 2.3%. Imports were also less than expected.
Japan’s October jobs data was about as forecasted with its unemployment rate holding at 2.6% (est was 2.5%) while the jobs to applicant ratio rose to 1.35 from 1.34 but still below the January 2020 level of 1.49 and even higher than that in 2019. Japan also reported retail sales data for October that was softer than expected with consumers seeing still modest wage gains and rising inflation. Long term JGB yields moved higher and the yen rallied vs the dollar with the broad dollar weakness.